ITAT Restores Charitable Exemption Claims and Deletes Section 271D Penalty for Educational Society

Ravi Rishi Educational Society, an institution registered under Section 12AA of the Income Tax Act, faced a significant tax demand after the Central Processing Centre (CPC) denied its exemptions under Sections 11 and 12 for the Assessment Years 2019-20 and 2020-21.

The denial was based on the technical ground that the society had failed to file its mandatory audit reports in Form 10B/10BB within the prescribed time limits. For AY 2017-18, the society was further penalised under Section 271D for allegedly receiving cash in lieu of sale consideration for agricultural land, in violation of Section 269SS.

Main Issue: Whether the delay in filing Form 10B/10BB, largely attributed to the COVID-19 pandemic, justifies the total denial of charitable exemptions and the taxation of gross receipts. Whether a penalty is legally sustainable if the Assessing Officer fails to record satisfaction for its initiation in the original assessment order.

ITAT’s Order: The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, ruled in favor of the assessee on both major counts. The Tribunal condoned the delay in filing the audit reports, noting that the majority of the delay occurred during the COVID-19 pandemic and was not intentional.

The Bench remanded the matter to the AO to decide the exemption claims afresh following the outcome of the society’s condonation application before the CBDT/Pr. CIT.

The ITAT held that even if exemptions were denied, only the surplus/profit should be taxed as an Association of Persons (AOP), rather than the entire gross receipts. The Tribunal quashed the levy of penalty, observing that recording satisfaction in the assessment order is a “mandatory” prerequisite for initiating penalty proceedings, which the AO had failed to fulfill.

To Read Full Judgment, Download PDF Given Below